June super fund returns are on the way to registering as the second worst month in more than 10 years, according to research by SuperRatings released last week.
The median balanced investment option has seen the financial year to date losses running at around 3 per cent to 6 per cent for the year.
To me, the large discrepancy in balanced fund returns highlights the need for advice and disclosure.
All balanced options are not the same: they don’t invest in the same assets, the same mix of assets or with the same investment principles. Investors need to be educated on what they are investing in even within the balanced options.
According to Morningstar head of research Anthony Serhan, there are three issues that have a bearing on the discrepancies between fund earnings: these are inconsistent labelling, listed versus unlisted fund assets and different mixes of growth and income assets.
Importantly, the last two points can have a major impact on short-term returns during periods of market volatility, but tend to smooth out over longer periods.
People use the term balanced options for myriad investment options and using different weightings. The investments themselves might include unlisted infrastructure, direct property, listed property, Australian equities, hedged international equities and unhedged international equities.
According to Serhan, labels in our industry are “more a function of what marketing people think will sell rather than a reflection of what’s underneath the bonnet”.
While researchers themselves have an idea of what constitutes a balanced option in their world, there is no industry regulation or standard enforcing it.
This can make funds with unlisted investments look better in the short term than those that report regularly including during market downturns.
As always it’s a case of investor beware, so make sure your clients are fully aware.
